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HQ 560237




July 22, 1997

CLA-2 RR:TC:SM 560237 DEC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9002.00.50

Mr. Robert Follick
Follick & Bessich
One Exchange Place, Suite 915
Jersey City, New Jersey 07302

RE: Reconsideration of HRL 559673; Applicability of subheading 9802.00.50, HTSUS, to imported Korean wool fabric exported to England for coating and returned to U.S.; stain-resistant; water- repellant; coating; Teflon; HRL 554883; HRL 555463

Dear Mr. Follick:

This is in response to your letter dated December 13, 1996, on behalf of HMS International Fabrics Corporation, which requests that Customs reconsider Headquarters Ruling Letter (HRL) 559673, dated October 9, 1996. Customs determined in that case that certain coating operations performed abroad, which render the wool fabric at issue stain resistant and water repellant, result in a new and commercially different article with materially different performance characteristics and a specialized use that are beyond the scope of "alterations." Accordingly, the fabric was deemed ineligible for the partial duty exemption provided by subheading 9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS), upon its return to the U.S. You submitted a sample with your request for reconsideration.

FACTS:

HMS imports wool worsted fabric from Korea into the United States, upon which the appropriate duties are paid. HMS proposes to export the fabric to England for further finishing operations which consist of the application of certain transparent coatings which render the fabric stain resistant and water repellant. Three different
agents, consisting of a Teflon coating as well as anti-static and wetting agents, are applied to the cloth by means of a continuous pad application. The coatings are then heat set at 170 degrees centigrade. Upon completion of the coating operation, the fabric is returned to the U.S.

On page 2 of your request for reconsideration of HRL 559673, you state that:

[i]t must be noted that the initial inquiry incorrectly ascribed the returned fabric as being "water repellant." The only treatment applied to the wool fabric following exportation from the United States and prior to reimportation is that which renders the fabric stain resistant.

However, the sample of the Teflon treated fabric which you submitted with your appeal has a hangtag containing information about the fabric treatment which specifically states that "Teflon provides maximum water and stain repellency."

You also state that both the treated and untreated fabric is sold exclusively to manufacturers of men's suits and to custom tailors and that the treated fabric is not used for outerwear. Pursuant to your request to present oral argument prior to a final determination, the staff attorney assigned to your case contacted you on April 10, 1997. During that conversation, you stated that you intended to submit additional information in support of your position. On June 26, 1997, you indicated in a telephone conversation with the same attorney that you would not send additional information and requested that Customs issue a ruling based on the information contained in your submission.

ISSUE:

Whether Korean wool fabric, exported from the U.S. to England for chemical treatment operations which render the fabric stain resistant and water repellant, is eligible for the partial duty exemption under subheading 9802.00.50, HTSUS, when returned to the United States.

LAW AND ANALYSIS:

Subheading 9802.00.50, HTSUS, provides a partial duty exemption for articles returned to the U.S. after having been exported to be advanced in value or improved in condition by means of a repair or alteration and duty is assessed only on the cost or value of the repair or alteration abroad. However, the application of this tariff provision is precluded in circumstances where the operations performed abroad destroy the
identity of the articles or create new or commercially different articles. The partial duty exemption provided for in subheading 9802.00.50, HTSUS, is also precluded where the exported articles are incomplete for their intended use and the foreign operation constitutes an intermediate processing operation, which is performed as a matter of course in the preparation or the manufacture of the finished article.

Rather than repeat the litany of court decisions and Customs Headquarters Ruling Letters on the eligibility of various coating operations discussed in HRL 559673, we will focus on those HRL's that are most pertinent and whether you have submitted sufficient evidence to merit the modification of HRL 559673. The focus of our review is to determine whether the application of the Teflon coating to the fabric creates a new or commercially different fabric or whether the fabric is incomplete for its intended use and the Teflon coating of the fabric is performed as a matter of course in the manufacture of the finished fabric.

Specifically with regard to coating operations, Customs held in HRL 554883, dated June 16, 1989, that coating polypropylene film with acrylic or saran creates a new article with a different use, thereby precluding eligibility for the duty exemption available under subheading 9802.00.50, HTSUS. In HRL 555463, dated September 11, 1990, Customs considered pre-stained wooden spindles, otherwise ready for use, which were exported to Canada to be pressure treated with a preservative for the purpose of enhancing their marketability. Because of the protection afforded by the preservative, its application had the effect of substantially enhancing the durability and longevity of the wooden spindles. Lacking a sample of the untreated spindles, Customs stated, "although it is not clear whether the spindles, as exported, are considered to be incomplete articles . . . it is apparent that the pressure-treatment process performed in Canada results in a commercially different product with new performance characteristics and a specialized use" and held that the articles were ineligible for the partial duty exemption provided under subheading 9802.00.50, HTSUS.

The effect of the chemical treatment on the wool fabric is similar to the pressure treatment of the wooden spindles in HRL 555463 discussed above. Like the spindles, the foreign operations performed on the wool fabric alter the performance capability of the treated merchandise, resulting in the creation of a commercially different product with new performance characteristics and a more specialized use. The chemical treatment of the fabric, which renders it stain resistant and water repellant, is not cosmetic in nature, but affects the manner of use of the treated fabric. Stain-resistant, water-repellant fabric, by virtue of its chemical treatment has different characteristics.

Upon review, we are of the opinion that the operations performed in England, which render the fabric stain resistant and water repellant, resulting in a new and
commercially different article with materially different characteristics and a specialized use, are beyond the scope of "alterations," as that term is used in subheading 9802.00.50, HTSUS. Accordingly, the fabric is ineligible for the partial duty exemption provided by subheading 9802.00.50, HTSUS, upon its return to the United States.

With respect to your contention that the untreated wool fabric and the Teflon treated fabric are used for the identical purpose of producing men's suits, we are unable to give consideration to this contention without independent verification that both the treated and untreated fabrics are used interchangeably in the production of men's suits.

HOLDING:

It is our opinion that insufficient evidence has been submitted to justify reversing the holding in HRL 559673. Accordingly, the fabric is ineligible for the partial duty exemption provided by subheading 9802.00.50, HTSUS, upon its return to the U.S. Accordingly, HRL 559673 is affirmed.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer.

Sincerely,

John Durant, Director

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